Wednesday, May 13, 2015

For several months and probably years, I have been following the silver market. I buy silver, small quantities, on a fairly regular basis. I always buy on Fridays because the price is always under attack on Fridays. I wish I had a chart of the silver price limited just to Fridays- because that is when precious metals are consistently sold off. It's almost automatic.

At any rate, several weeks ago, I caught an article about JP Morgan buying silver hand over fist. We're talking 9 million ounces in the space of two weeks.

The silver market, in relative dollar terms, is very small. The Hunt brothers tried to corner it in the late 70's but failed- driving the price of silver to 50 bucks an oz in the process. Interestingly enough, the Hunt brothers telegraphed their intentions which allowed a lot of folks to hop onto the bandwagon and drive the price up in the process. I was one of them. The Hunts helped pay for my college and a car.

So what about a giant TBTF banker- with access to billions of relatively cheap FED dollars and leverage to trillions more- what's stopping them from succeeding where the Hunt brothers failed? Especially if they have the means to take delivery of the actual physical metal rather than simply trading paper?

Not much. In fact, with nothing left to invest in- having driven the equity markets to 200% of probable fair value from the lows of Mar. 09- cornering the silver market seems like a no brainer. The price of silver has been so decimated that I doubt silver miners can even turn a profit. I think based on years and years of research- that fair value or break even costs of silver producers has to be around 21.00 dollars an oz.- in a very general sense because silver is often the by-product of other mining operations. Today the price of silver stands just a shade over 17 bucks an oz.

Here's something far more recent (May of 2015) I stole from somewhere: (I apologize if it is redundant)

At the time the Hunt brothers were believed to have acquired futures contracts worth one third of total annual global mine supply on leverage. Had they been in a position to meet the margin call if the outcome may have been quite different.

Had they accumulated physical silver rather than paper silver in the form of futures contracts, as JP Morgan are doing, the Hunts would likely have made an absolute fortune.

So, it is interesting to note that legendary silver market analyst Ted Butler has estimated that JP Morgan may currently hold far more than their official figure of 55 million ounces.

Butler believes the true figure to be closer to 350 million ounces. Annual global silver production is 820 million ounces which, if Butler is correct, puts JP Morgan in a position to corner the physical silver market today, unlike the Hunt brothers back in 1980. As this would equate to a holding 42.7% of total annual supply.

JP Morgan has been acquiring this vast hoard of physical silver while holding the largest short position in the silver futures market, i.e. while suppressing the silver price with its unlimited access to free money, according to Butler.

It's hard to escape the fact that if JP Morgan isn't trying to actively corner the silver market- it sure looks like it can. All that might stand in JP Morgan's path are laws which as we have learned- don't really apply to the TBTF banks anyway. They probably have a legal department which has far more savvy and acumen than anything our government can muster.

At any rate, it's kind of nice to be on the right side of a trade for a change. I am just going to go about my business of accumulating silver just like JP Morgan does. Very quietly and mostly on Fridays.